What are the limits of financial analysis?Is it possible to rely solely upon analysis to evaluate the performance of companies?

Many limitations surroundings financial statements analysis are:

• Many large firms operate different divisions in different industries. For these companies it is difficult to find a meaningful set of industry-average ratios.
• Inflation may have badly distorted a company's balance sheet. In this case, profits will also be affected. Thus a ratio analysis of one company over time or a comparative analysis of companies of different ages must be interpreted with judgment.
• Seasonal factors can also distort ratio analysis. Understanding seasonal factors that affect a business can reduce the chance of misinterpretation. For example, a retailer's inventory may be high in the summer in preparation for the back-to-school season. As a result, the company's accounts payable will be high and its ROA low.
• Different accounting practices can distort comparisons even within the same company (leasing versus buying equipment, LIFO versus FIFO, etc.).
• It is difficult to generalize about whether a ratio is good or not. A high cash ratio in a historically classified growth company may be interpreted as a good sign, but could also be seen as a sign that the company is no longer a growth company and should command lower valuations.
• A company may have some good and some bad ratios, making it difficult to tell if it's a good or weak company.

 Financial Analysis is reliable upto a limt but you one can not solely rely on it for evaluationg business performance. Other factors like the overall business environment, demographic factors, general economic conditions etc also plays a very important role.

It depend on the requirement of that analysis, for what purpose you are evaluating performance. If you want to evaluate position f the company than financials are the major indicators however; other factors are also important. Swot and PEST analysis also can be useful to analyze company and its industry.

Financial analysis is a part, and you need the sum of the whole to evaluate a company (not fact, but my opinion).

Financial analysis is based on past data which i think is one the biggest limitation.